HD51 - Study of Pooled Purchasing Arrangements for Small Employers, Community Health Centers and Free Clinics Pursuant to HJR 202/SJR 124

Executive Summary:

Senate Joint Resolution (SJR) 124 and House Joint Resolution (HJR) 202 of the 1998 Session of the General Assembly directed the Joint Commission on Health Care to study various issues regarding pooled purchasing arrangements for health insurance for small employers, community health centers, and free clinics.

Specifically, SJR 124/HJR 202 directed the Joint Commission's study to include: (i) evaluating the pooled purchasing arrangements operating in California, Florida and other states; (ii) assessing the level of interest among Virginia's small employers in participating in a pooled purchasing arrangement; (iii) analyzing the key elements of such a purchasing pool to maximize the number of participating employers; and (iv) identifying health insurance market reforms or other actions necessary to ensure the success of a purchasing pool.

Based on our research and analysis during this review, we concluded the following:

• small employers (groups of 2-50 employees) traditionally have had a more difficult time purchasing coverage for their employees than larger employers primarily due to cost;

• small employers have a significantly higher percentage of employees who are uninsured than larger employers;

• pooled purchasing arrangements, such as health insurance purchasing cooperatives (HIPCs), provide a means for aggregating purchasing power and spreading risk for small employers;

• HIPCs can offer several advantages for small employers, including more stable premiums, lower administrative costs, and a greater choice of plan options for employees;

• while pooled purchasing arrangements can be defined in many ways, there appear to be 11 HIPCs across the country which offer multiple benefit options and standardized benefits;

• the success of HIPCs has been mixed; some (e.g., California, Connecticut and Florida) have been very successful, while others have not had the market impact that was anticipated;

• there are several key elements to the success of a HIPC, including: (i) market rules inside and outside of the HIPC must be identical; and (ii) insurance agents and brokers must support the plan and play a key role in marketing the HIPC's products;

• Virginia does not require modified community rating in the small group market except for the Essential and Standard plans; if a Virginia HIPC were to use modified community rating, legislation would be needed to require the same rating methods for all products in the small group market;

• small businesses in Virginia support the concept of a HIPC; however, without an actuarial analysis of the cost of coverage inside and outside of a HIPC, it is difficult to gauge whether employers actually would purchase coverage through the HIPC;

• the Code of Virginia does not prohibit the private formation of a HIPC by interested parties leading some to believe that if there is a need for a HIPC in Virginia, the private sector should respond to this need rather than the Commonwealth;

• while THE LOCAL CHOICE (TLC) program has functioned successfully as a HIPC for local governments and school divisions, expanding eligibility for the program to small businesses likely would create a number of administrative difficulties which could increase administrative costs and potentially injure the program; and

• based on TLC rates calculated for a sample of Free Clinics and Community Health Centers (CHCs), only a handful of the Free Clinics and CHCs indicated that the program would result in any significant savings in insurance premiums.

A number of policy options were offered for consideration by the Joint Commission on Health Care regarding the issues discussed in this report. These policy options are listed on pages 31-32.

Our review process on this topic included an initial staff briefing, which comprises the body of this report. This was followed by a public comment period during which time interested parties forwarded written comments to us regarding the report.